How The Coronavirus Has Affected Mortgages

The coronavirus has affected mortgages, rentals, tax and salaries. In today's article we're going to focus on mortgages and mortgage repayments.

This week we've had a number of questions from clients asking us how coronavirus has affected mortgages:

1. How will the interest rate cut affect my mortgage?
2. How will coronavirus affect my mortgage application?
3. My tenants say they can't pay the rent - how can I pay my mortgage?

You may find the HMRC page on buying and selling houses during the coronavirus helpful. Please also check out our Coronavirus Update if you haven't already.

1. Mortgage Interest Rates

On the 11th of March, the Bank of England reduced the Base Rate (BBR) to 0.25%. A week later, they reduced it again to 0.1%.

It's worth remembering that mortgages are not necessarily tied to the base rate. For most borrowers, reduced interest rates are good news. But many lenders actually use money market rates rather than BBR. As such, you may well see no different in your mortgage payments.

The exception, of course, is a mortgage which is explicitly lined to the BBR. In this case, you should expect your repayments to fall by 0.74%. We would encourage you, however, to check with your mortgage provider.

2. Mortgage Applications

If you currently have a mortgage application in progress, you should expect significant delays. There are a number of reasons why things will likely take much longer than anticipated:

• Bank and mortgage staff will be ill, isolated or working on other jobs
• Lenders may want to suspend new applications during such financial uncertainty
• Lockdown restrictions mean that it is almost impossible to visibly inspect houses

We suggest talking to your mortgage lender or broker to see how they are planning to deal with applications in the coming months. You may well prefer to halt the application yourself, until you have a bit more clarity on your own financial position.

In these situations, honest and prompt communication is almost always the solution.

3. Defaulting Tenants & Mortgage Assistance

Struggling to afford mortgage payments is hard enough. But if you own property for buy-to-let purposes, you may find this compounded by tenants who can't pay the rent. Unfortunately, your options are limited at the moment.

From the HMRC guidelines for landlords and renters:

The government has brought forward a package of measures to protect renters affected by coronavirus (COVID-19). With these in force, no renter in either social or private accommodation will be forced out of their home.

The government is keen to stress that this does not affect the strict liability for payment. Even though they can't be evicted, tenants are still liable for their rent and should pay as usual.

As a landlord, you may be able to apply for assistance if your tenants don't pay you. You'll also benefit from a 3 month mortgage payment holiday. You will still be charged interest during this period, but the FCA has made it clear that taking a mortgage holiday won't affect your credit rating.

Final Thoughts

If you have been affected by any of the issues in this post, please do not hesitate to get in touch. Key Business Consultants are chartered accountants and tax specialists who are here to help you with your finances in this very difficult time.

We work with a number of specialist mortgage lenders and advisers who have a huge amount of experience working with individuals and companies. We would be more than happy to make the necessary introductions on your behalf.

You may also find our Coronavirus Summary Tips useful. We are getting more information all the time during the crisis. Please continue to check back on our blog for updates as soon as we have them.